FINRA Announces Auction-Rate Securities Settlements with More Firms


Yesterday the Financial Industry Regulatory Authority (“FINRA”) announced auction-rate securities settlements with SunTrust Robinson Humphrey, Comerica Securities, First Southwest, and WaMu Investments, Inc.

Pursuant to the settlements, these brokerage firms have agreed to repurchase auction-rate securities that they sold between May 31, 2006 and February 28, 2008 to small investors (defined as individual investors, charities and small business with $10 million or less in their accounts at the firms). Under the settlement, holders of approximately $1.8 billion of auction-rate securities will be able to resell the securities that they bought from these firms. The firms will make whole individual investors who sold their auction-rate securities at below face value after February 28, 2008. The firms will agree to participate in a special arbitration proceeding to resolve any investors’ claims for consequential damages. The firms have agreed to use their best efforts to provide liquidity to auction-rate securities investors who are not covered by this settlement.

These settlements are significant because they involve so called “downstream” or “distributing” brokerage firms. Generally, such firms were not primary underwriters of auction-rate securities but were primarily distributors of the securities. Previously many of these firms have contended that they, themselves, were victims of misconduct by financial institutions that underwrote auction-rate securities.

In announcing the settlements, FINRA stated that it had found evidence that each of the firms used misleading advertising, and marketing materials relating to auction-rate securities, and did not provide fair and balanced presentations that would permit investors to fairly evaluate the risks of auction-rate securities. FINRA also found evidence that the firms failed to satisfy their supervisory obligations to achieve compliance with securities laws in connection with their auction-rate securities activities.

While this is the first auction-rate securities settlement reached by FINRA, state securities regulators have previously announced auction-rate securities settlements with Citigroup, UBS, JP Morgan, Morgan Stanley, Wachovia, Merrill Lynch, Deutsche Bank, Goldman Sachs, Bank of America, and Fidelity.

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry’s attorneys are actively involved in representing institutional and individual investors in auction-rate securities cases. For further information, please contact us.